NYT: JPMorgan's Trading Loss Could Lead to Arrests Soon

Problems at JPMorgan Chase's Chief Investment Office (CIO) — the unit responsible for the infamous multi-billion trading loss announced in May — have been fixed, according to CEO Jamie Dimon. But, questions of criminal behavior have not been put to rest.

Federal authorities are using taped phone conversations to build criminal cases against those involved in the trades, The New York Times reported.

Investigators are looking into the actions of four people who previously worked for the London-based team based that was responsible for the $6 billion loss, according to officials briefed on the case, according to The Times.

The bank estimates it will lose at most another $1.7 billion from the bad credit trades, in which CIO traders used derivatives to bet on corporate debt, Reuters reported.

Investors cheered the bank for capping losses and taking steps to ensure it avoids similar trades in the future, according to Reuters.

Authorities, on the other hand are not cheering.

They are focusing on calls in which employees openly discussed how to value the troubled bets in a favorable way, reports The Times.

Taping of conversations is routine practice at JPMorgan and the firm provided the authorities with the recordings they are assessing. Other correspondence, such as emails and meeting minutes, are also being analyzed.

When the infamous trades started to turn sour, instead of developing an exit strategy, it appears the individuals involved decided to make bigger bets, which also ultimately turned sour. Now, the question is did they cross the legal line in efforts to conceal the losses.

Federal authorities believe they may have, by intentionally providing false information to regulators.

The criminal investigation began in earnest after JPMorgan's internal investigation revealed that CIO traders might have intentionally masked losses, a source told Reuters.

Those inaccurate values associated with these bad trades have forced JPMorgan to restate its first-quarter earnings downward.

“I see little doubt that someone is going to get charged with fraud,” Bill Singer, a lawyer at Herskovits in New York who provides legal counsel to securities industry firms, told Reuters.

The FBI could make some arrests in the next few months, a person speaking on the condition of anonymity told The Times.

Problems at JPMorgan Chase's Chief Investment Office (CIO) — the unit responsible for the infamous multi-billion trading loss announced in May — have been fixed, according to CEO Jamie Dimon. But, questions of criminal behavior have not been put to rest.